U.S., Mexico reach sugar pact without backing from U.S. producers; June 6, 2017

The U.S. and Mexican governments reached a new agreement to significantly shift their sugar trade mix, but U.S. sugar producers have failed to endorse the deal, leaving question marks over whether it could still sour broader trade relations.

U.S. Commerce Secretary Wilbur Ross said the “agreement in principle” with Mexican Economy Minister Ildefonso Guajardo calls for Mexico to reduce the share of refined sugar in its exports to the United States, while increasing the share of raw sugar.

He said Mexico met nearly every request by the U.S. sugar industry to fix problems with a 2014 sugar trade agreement.

“Unfortunately, despite all of these gains, the U.S. sugar industry has said it is unable to support the agreement in its present form,” Ross said without elaborating on their objections.

He added that the agreement would go through a final drafting stage in which he hoped that the U.S. producers could come on board with it.

Asked how long this would take, Ross said, “It should be days, not weeks or months.”

The deal cut by Ross and Guajardo leaves Mexico’s overall access to the U.S. sugar market unchanged but refined sugar must fall to 30 percent of overall imports from Mexico from a previous limit 53 percent.

It also lifts the U.S. price paid for Mexican raw sugar to 23 cents per pound from 22.25 cents, while, the price for refined sugar will rise to 28 cents per pound from 26 cents. These prices exclude shipping and packaging costs, the Commerce Department said in a summary.

An agreement was expected to help avoid potential retaliation from Mexico on imports of U.S. high-fructose corn syrup, a trade battle that would heighten U.S.-Mexico tensions as both countries along with Canada prepare to begin renegotiating the 23-year-old North American Free Trade Agreement in August.

Ross on Monday extended the deadline for the negotiations by 24 hours to complete what he called “final technical consultations” for a deal.

Sources on both sides of the border said on Monday that the U.S. sugar industry had added new demands outside of the terms agreed on earlier in the day by the two governments.

U.S. refiners have complained that high-quality Mexican raw sugar was going straight to sugar consumers, rather than passing through U.S. refineries.

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The deal would mark the culmination of a years-long dispute between the countries over sugar, after U.S. groups three years ago asked the government for protection from dumping of subsidized imports from Mexico. In 2014, the U.S. government slapped large duties on Mexican sugar but hammered out a deal with Mexico that suspended those levies. Factions of the U.S. industry have said that the deal has failed to eliminate harm from Mexican imports.

The U.S. industry involved in the dispute include a coalition of cane and beet farming groups as well as ASR Group, the maker of Domino Sugar that is owned by the politically connected Fanjul family.

ASR and fellow cane refiner Imperial Sugar, owned by commodities firm Louis Dreyfus Company BV [AKIRAU.UL], have said they are being starved of raw supplies under the current deal. They have asked the U.S. government to terminate the pact.

The latest talks began in March, two months after U.S. President Donald Trump took office vowing a tougher line on trade to protect U.S. industry and jobs.

(Additional reporting by Susan Heavey in Washington, Anthony Esposito and Dave Graham in Mexico City and Chris Prentice in New York.; Editing by Chizu Nomiyama, Meredith Mazzilli and Lisa Shumaker)

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